FALCONER PAPER ON SPECIAL PRODUCTS SPLITS G-33, FARM EXPORTERS

The G-33 group of developing countries has criticised the chair of the ongoing WTO agriculture negotiations for his unfavourable assessment of the market access flexibilities they are seeking, particularly his implication that the approach they favour would allow developing countries to shield an inappropriately high proportion of farm imports from the full force of tariff cuts. On 5 May, delegates from the group accused Chair Ambassador Crawford Falconer (New Zealand) of seeking to introduce market access considerations into the basis for selecting 'special products' (SPs), even though this was not part of the negotiating mandate.

The day before, Falconer had circulated a reference paper to Members highlighting the "wide gaps" between their positions on how many products developing countries should be able to designate as 'special' for lenient tariff treatment on the basis of food security, livelihood security, and rural development concerns. While the Hong Kong Declaration stipulates that developing countries "will have the flexibility to self-designate an appropriate number of tariff lines as SPs guided by indicators" based on the three criteria, their precise number and treatment remains unresolved, as does the extent to which the indicators should determine what can qualify as an SP.

The issue has revealed deep divisions between farm exporters, who seek more extensive market access for their products, and the 42 members of the G-33, which want relatively expansive SP coverage. Indeed, a number of developing country exporters expressed support for the chair's reference paper.

Falconer warned that failing to resolve the issue now would simply postpone arguments over which products countries designate as 'special' to later in the talks, when Members will have to approve each other's product-specific liberalisation commitments. Of course, before getting to the stage where they can review each other's commitment schedules, Members must first agree on modalities for tariff and subsidy cuts. Progress towards this remains slow, in spite of intense discussions over the past week.

Falconer: "serious mismatch" between proposals and intentions

Some of the most controversial sections of the reference paper sprang from a calculation, carried out at Falconer's request by the WTO Secretariat, to examine the possible effects of the G-33's November 2005 proposal to make "at least 20 percent" of all tariff lines eligible for SP status. The Secretariat found that designating 20 percent of tariff lines as SPs could allow two unnamed developing countries to shield as much as 98.4 and 94 percent of the total value of their respective farm imports from Doha Round tariff cuts.

If this were the case for other countries, Falconer wrote, "it would trump anything envisaged under" the July Framework's provisions for special and differential treatment, by essentially exempting developing countries from the obligation to cut tariffs. He asserted that no Member could plausibly describe that much of their trade as 'special.' "There might be a debatable line defining what percentage of trade would represent 'special' as opposed to 'normal,' but I'm comfortable with the judgment that 94 percent or 98 percent is a long way from a debatable line," he added.

These assessments provoked a strong response from the G-33, which took the position that no considerations apart from food security, livelihood security, and rural development should guide the number or selection of SPs. Speaking on behalf of the group, Indonesia said that the paper "amounts to a re-negotiation of the mandate," arguing that the needs of developing countries must not "be held hostage to the exporting interests of a few." Indonesia's remarks received support from Cuba, India, Honduras, Peru, the Philippines, Venezuela, and the African Group.

In contrast, Chile, Costa Rica, Malaysia, and Thailand said that the paper reflected their concerns that the G-33 proposal would endanger South-South trade. The latter two countries have proposed a more circumscribed version of SP eligibility, excluding products in which developing countries dominate world trade (see BRIDGES Weekly, 3 May 2006).

G-33 negotiators insist that their governments have no intention of using their SPs to shelter nearly as high a proportion of agricultural imports from Doha Round tariff cuts. They question whether the two countries examined by the Secretariat were indeed representative, as Falconer implied. Furthermore, they point out that, since special products would not necessarily be the ones imported in the greatest quantities, a set of SPs that adequately responds to the three criteria outlined in the mandate could easily cover a substantially lower proportion of imports. One source suggested that this range could be of the order of 25 to 30 percent. At the meeting, the G-33 emphasised that the entire notion of SPs is not based on trade-related concerns, and thus should not be viewed through the prism of commercial considerations.

The agriculture chair acknowledged some of the group's concerns in his reference paper, saying that discussions had indicated that no developing country "seriously intends to resort to such a high level of use for SPs." However, he identified an unintended "mismatch" between the G-33's proposal and Members' expressed view that SPs were to be a 'genuinely special category' in line to receive treatment that "could not and would not be the norm" for all farm imports. "In order to lower the potential size of trade coverage to something closer to an ordinary meaning of 'special,' the percentage [of tariff lines] at issue would have to come down significantly from 20 percent," he claimed.

G-33 delegates also took issue with Falconer's assertion that they had demonstrated "little readiness" to consider treating SPs "in anything other than a firmly import-limiting manner." They faulted his reference paper for failing to mention that their proposal would cut tariffs on one quarter of SPs by 5 percent, and those on another quarter by up to 10 percent, though the rest would be completely exempt from tariff reduction.

Sources report that Falconer has acknowledged in consultations that the most restrictive proposal for SPs currently on the negotiating table -- the US' bid to limit SP status to five tariff lines -- would also be unlikely to garner consensus (see BRIDGES Weekly, 3 May 2006). At the 6-digit HS level, a country would need 8 tariff lines simply to shield fresh and powdered milk and cream from tariff cuts.

Three options for way out of impasse

Falconer defended his paper against criticism, arguing that it merely examined potential effects of the G-33 proposal, as other Members were doing anyway. Members simply needed to confront uncomfortable facts, he said. "Everybody's been pussy-footing around this for too damn long."

The agriculture chair outlined three options that could help resolve the impasse on SPs. The first two would be to make a lower percentage of tariff lines eligible for SP designation or to require their tariff treatment to be "more permissive of trade." The third would have "particular Members" declare in advance that they would either not designate any SPs, or that they would utilise them "to a lesser extent than what might be generally agreed." He noted that the notion of identifying SPs on the sole basis of a common set of finite indicators did not have adequate support, saying that "I think we have moved towards wanting to work on the hypothesis of numbers."

He added that finalising the number of SPs may not be possible at the level of Geneva-based negotiators, because of the immense reach of the decision's potential effects.

In the absence of an agreement on indicators or numbers for SPs, Falconer's reference paper said that everything would be left by default to the 'post-modalities' phase, when Members will review each other's scheduled liberalisation commitments. With no guidelines for how to proceed with the designation of SPs, this would risk turning into a protracted round of haggling over the number of and basis for shielded products. Potentially even more contentious would be which particular products countries designate as their SPs. Falconer noted that this "would put huge time-pressure on the later stages of the negotiations," and that most negotiators reported unease about the prospect of a 'tug of war' over their SPs at that point. Furthermore, the G-33 countries have threatened to withhold consent from any modalities package that does not include rules for SPs.

Sources report that the G-33 asked Falconer to revise his reference paper. The group may also come forward with a submission clarifying their perspectives on SPs.

ICTSD reporting.